67.4% of American families held instalment loans as of 2016.
Personal loans, also known as instalment or consumer loans are closed-end credit sources that don’t require collateral. Unlike credit card loans, personal loans come with fixed payments for a specific period. They are ideal to when it comes to helping with DIY projects or home improvements
Due to the advantages, a personal loan offers over other types of credit, many people find themselves thinking of taking one. However, there are a few things you need to know before talking to a lender that can help you land the best terms.
Are you thinking of getting an instalment loan? Here is a quick primer on how to take out a personal loan that won’t saddle you with aggressive credit terms.
Benefits of Taking out a Personal Loan For Home Improvements
Many people today use a credit card in their everyday lives. However, personal loans provide more benefits than credit cards. The following are some of them.
1. Lower Interest Rates than Credit Cards
Interest rates on personal loans are lower than on credit cards. Therefore, if you have credit card debt you can take out a personal loan to pay off your cards. That will leave you with cheaper debt that you can better manage.
2. It's More Flexible
Personal loans have a variety of uses compared to credit cards. When you use credit cards, you will be tied to stores and other retail environments that use the point of sale system to process the card.
Personal loans allow you to have the cash which you can spend anywhere. Some businesses will even prefer cash and offer you discounts for it so as to avoid credit card vendor fees.
3. Stable Interest Rates
Credit cards offer a revolving credit line that leads to varying rates of interest rates. As you pay it down, you keep using it meaning that your balance still increases.
Personal loans offer a stable interest rate which reduces as you continue making your payments.
A Step by Step Guide on How to Take out a Personal Loan
A personal loan offers you several benefits that can make your life easier. If you’re thinking of taking out a personal loan, you need to know all that it entails so that you can make an informed choice.
Here is a five-step guide on all you need to know so as to get a personal loan
1. Decide on the Right Type of Loan for You
When you’re thinking of a personal loan, it is beneficial for you to first ask yourself why you need the loan.
The nature of your need will dictate the kind of personal loan that you will end up selecting.
Unless you do that, you will experience analysis-paralysis due to the high number of options in the market.
There are several types of loans found under the standard personal loan category, and they include auto loans, mortgage loans, and the like.
Options under the non-traditional personal loan category include wedding loans and vacation loans among others.
Matching your need to the loans available will help you optimize on these factors for the best loan option for you.
2. Check Your Credit and Work on Any Issues
Your credit score is a critical metric that a lender will use to gauge your level of risk as a potential client.
Consequently, the terms you get on a personal loan will end up being partly influenced by the final analysis of your credit score.
It is, therefore, critical that you seek to improve any issues of concern regarding your credit score.
Begin by getting a free credit report. Go through it thoroughly to understand your current status and check for any errors. In case you find any errors you should request for deletion.
Did you find any outstanding debt listed on the report? Pay it immediately to improve your risk profile.
As you build your score look at your level credit utilization i.e the amount of debt you’ve used out of all the available debt.
The lower your utilization rate the better your credit score. Aim to keep it at around 30% to be seen as a responsible client.
3. Compare Lenders
There are varying types of personal loan options that come with different terms and conditions. It's essential that you look through these options to find the most suitable choice.
You also have the option to use online comparison portals to see what lenders are offering and benchmark against that.
As you compare the offers, concentrate on the interest rate, the lifetime of the loan, repayment terms, and penalties for paying the loan off early.
4. Ready Your Application
When you finally settle on a choice of a loan after assessing all the available options, it is time to work on your application papers.
Collect whatever information lenders are asking of you so that your application goes faster. Information you will be required to present includes:
● Copy of your driver’s license
● Proof you are employed
● Proof of income like pay stubs or past tax returns
Do not apply to several lenders simultaneously as it will lower your credit score. Deal with one lender at a time to avoid generating many requests for your credit score at once.
There isn’t a particular window in which you should expect a response once you send in your loan application. It will depend on the loan size and the paperwork it involves.
5. Process the Decision
If your application gets approved, the lender will send you a letter detailing the loan closing information. Pay particular attention to the interest rate, late payment fees, and the terms of repayment.
If the application is denied, you should get to find out the reasons for its rejection. Typically these will revolve around a high debt-to-income ratio, a low credit score, or a lack of credit.
Once you know what the issue is, you can work on it before making your next application.
Find a Personal Loan That Works for You
Personal loans are still a mainstay of many American families when they need to access credit. The reason for the popularity is the low-interest rates they offer and the fact that you do not need to provide collateral.
If you are wondering how to take out a personal loan, a little research beforehand will be quite useful. Identifying the right lender will save you a lot of trouble.